To calculate the compound interest for an investment, you can follow these steps:
Compound interest is the interest that is earned on an initial principal amount as well as the accumulated interest from previous periods. The interest is added to the principal, and the resulting amount becomes the new principal for the next interval.
Interest can be compounded on any given frequency schedule, such as continuous, daily, or annually. The compounding periods are the time intervals between when interest is added to the account. Interest on an account may accrue daily but only credited monthly. Only when the interest is credited, or added to the existing balance, does the interest begin to earn additional interest.
The formula for compound interest is A = P(1 + R/100)^t, where A is the amount, P is the principal, R is the rate of interest, and t is the time period.
Simple interest is a set percentage paid on the initial principal, while compound interest is interest paid on both principal and existing interest. In simple interest, interest is not added to the principal while calculating the interest during the next period. In compound interest, the interest so far accumulated is added to the principal, and the resulting amount becomes the new principal for the next interval.
Compound interest can be calculated yearly, half-yearly, quarterly, monthly, daily, etc., as per the requirement.